The Central Bank is projecting a two-and-a-half per cent reduction in the cost of food for consumers as a result of the impact of the removal of Value Added Tax (VAT) on certain food items.
This is based on the Central Statistical Office's basket of goods in the retail price index (RPI).
Central Bank Governor Jwala Rambarran noted yesterday that this was simply the immediate, one-off impact, and market forces will eventually reassert themselves in determining prices.
"It's demand and supply...by early next year it is quite likely the VAT impact will have been muted or disappeared," he said, adding that the most volatile contributor to inflation — the prices of fruits and vegetables — were already zero-rated.
Rambarran was the featured speaker at a Trinidad and Tobago Chamber of Commerce luncheon meeting on the "Outlook of the Local Economy for 2013" yesterday at the Chamber Building, Westmoorings.
Rambarran said that while demand in the foreign exchange market continues to be high, the Bank will step in to support the market.
"(High demand) is not only during the holiday season. We continue to have very high demand and inflows are usually lumpy in terms of supply; you will always have those friction points developing and at those friction points that is where the Bank will step in to support the market," he said.
He said over the course of the year, even though the economy has been sluggish, the demand for imported goods and services was still robust-higher than the Bank anticipated.
He said the Bank had already sold US$1.4 billion to the market for the period January to October 2012 — a $.2 billion increase over the same period last year.
The country's foreign reserves stand at US$9.3 billion — or just under 11 months of import cover.
This is a slight fall of 5.6 per cent from the previous six months. In April, reserves stood at just about US$9.9 billion.
"Our import cover could always be better. A small open economy should never become complacent about the level of foreign exchange reserves. You could never have enough," Rambarran said.